Key features of securitisation and asset based lending
Key features of securitisation and asset based lending

The following Restructuring & Insolvency guidance note provides comprehensive and up to date legal information covering:

  • Key features of securitisation and asset based lending
  • Brexit
  • Rationale
  • Structure
  • 'Bankruptcy remoteness' compared with 'bankruptcy proof'
  • Features of a SPV
  • Enforcement methods
  • Relevance to the credit crunch
  • Difficulties in restructuring securitised transactions

Brexit

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note. For further guidance on the impact of Brexit on securitisation, see Practice Note: Impact of Brexit: Securitisation Regulation—quick guide.

Rationale

Essentially, securitisation makes use of a receivables income stream through the creation of a special purpose vehicle (SPV) which issues bonds or notes to obtain cheaper finance. It was originally used in the US and is essentially a sophisticated method of factoring receivables. Types of receivables which can be securitised include:

  1. mortgage payments

  2. bank loan repayments

  3. lease/rental payments

  4. credit card repayments

  5. insurance premium payments

Benefits of securitisation include:

  1. cheaper borrowing—the SPV may get a better credit rating than the debtor company (originator). Either the obligors for the receivables have a better credit rating than the originator, or credit rating agents may find it easier to rate a single asset (the receivables) as opposed to the originator, which has more variables. A better credit rating means that the SPV can issue bonds/notes with lower yields so reducing the cost of funding (see Practice Note: Impact of credit ratings downgrades)

  2. balance-sheet improvements—the process accelerates cash receipts for the originator, so rather than having to wait for the receivables to be collected in, it